RIL's LyondellBasell dreams fade

Dutch firm’s unsecured creditors agree to settle dispute with management.

Dashing dreams of Reliance Industries’ (RIL) acquisition of bankrupt chemical giant LyondellBasell, unsecured creditors of the Dutch firm have agreed to settle a dispute over claims and support reorganisation plans of its management. LyondellBasell has offered an additional $150 million towards claims of the unsecured creditors.

The unsecured creditors, who had part-funded the company in a leveraged buyout of US-based Lyondell in 2007, were till now supporting the entry of potential investors such as RIL to rescue the firm. They, including bond holders, are estimated to hold $3 billion in debt in the company.

With the new agreement, the chances of RIL succeeding on a takeover are bleak, unless the management offers equity to the Indian petroleum giant to raise fund to settle the debt, said sources close to the development.
 

TIME LINE

NOVEMBER 2009
RIL makes preliminary non-binding cash offer of $12 bn for a controlling stake 

DECEMBER 2009
LB announces substantial creditor support for its reorganisation plan

JANUARY 2010
RIL revises offer to buy a controlling stake in LB for $13.5 bn 

FEBRUARY 2010
LB announces settlement of inter-creditor dispute

Announcing the settlement, LyondellBasell today said the agreement would help the company emerge from Chapter 11 that deals with bankruptcy. The proposed agreement will be valid subject to court approval and final internal approval, the company added.

“The agreement increases the amount, which will be distributed on the effective date of the plan to the holders of general unsecured claims, to $450 million from $300 million. As part of the agreement, the unsecured creditors’ committee, substantial holders of senior debt and bridge debt and the 2015 Notes Trustee have agreed to support LyondellBasell’s plan,” the company said in its statement.

The reorganisation plan of the Lyondell management offers to convert $18-billion debt of secured and unsecured creditors, including bridge loans, into equity. Moreover, the existing promoters will subscribe to a $3-billion rights issue of the company, to continue management control. After implementing the reorganisation plan, Lyondell would value at around $21 billion, said analysts.

Earlier, the unsecured creditors, organised under the creditors’ committee, had alleged that the management and secured creditors, such as Citibank and Deutsche Bank, had wrongfully brought about a cross-Atlantic merger that was engineered to fail. In the court proceedings, they fought against the secured creditors and supported the entry of RIL.

The bankruptcy court in New York, which has been overseeing the proceedings of the beleaguered chemicals maker, in a ruling on January 19 dismissed the unsecured creditors’ petition seeking a larger role for potential investors such as RIL in rescuing the company.

“The dispute between the unsecured creditors and the defendants has been limiting LyondellBasell’s ability to complete approval of the disclosure statement and plan of reorganisation. It is anticipated that this can be accomplished soon,” the company said on Tuesday.

RIL has been building financial warchest of nearly $2 billion for the past six months by selling treasury shares, to fund “global opportunities”.